NEW YORK, NY – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its fourth quarter and full year ended December 31, 2012.
Time Warner Cable Chief Executive Officer Glenn Britt said: “We delivered revenue growth of almost 9% in 2012 – powered by our acquisition and successful integration of Insight Communications, continued success in residential high-speed data and business services, and a best-ever year in advertising. In the year ahead, we plan to focus on operational excellence as we invest to capture long-term opportunities and drive profitable growth.”
Revenue for the fourth quarter of 2012 increased 9.9% from the fourth quarter of 2011 to $5.5 billion. Residential services revenue increased 6.8% year-over-year to $4.6 billion, business services revenue grew 25.9% to $515 million, advertising revenue increased 29.3% to $313 million and other revenue grew 37.9% to $80 million.
Full-year 2012 revenue increased 8.7% year-over-year to $21.4 billion. Residential services revenue grew 6.3% year-over-year to $18.2 billion, business services revenue increased 29.4% to $1.9 billion, advertising revenue increased 19.7% to $1.1 billion and other revenue increased 10.3% to $257 million.
Revenue for the fourth quarter and full year of 2012 benefited from acquisitions, as detailed below.
Excluding the impact from acquisitions:
Residential services revenue
Residential services revenue growth for the fourth quarter and full year of 2012 was primarily driven by an increase in high-speed data revenue, partially offset by declines in video and voice revenue.
- The growth in residential high-speed data revenue was the result of growth in high-speed data subscribers and an increase in average revenue per subscriber, primarily due to price increases (including equipment rental charges) and a greater percentage of subscribers purchasing higher-priced tiers of service.
- Residential video revenue decreased driven by declines in video subscribers and transactional video-on-demand and premium network revenue, partially offset by price increases, a greater percentage of subscribers purchasing higher-priced tiers of service and increased revenue from equipment rentals.
- Residential voice revenue decreased slightly due to a decrease in average revenue per subscriber, partially offset by growth in voice subscribers.
Business services revenue
Business services revenue growth for the fourth quarter and full year of 2012 was primarily due to increases in high-speed data and voice subscribers and growth in Metro Ethernet revenue.
Advertising revenue increased for the fourth quarter and full year of 2012 primarily as a result of increases in political advertising, revenue from advertising inventory sold on behalf of other video distributors and the advertising sold on the Company’s two Los Angeles regional sports networks, which were launched on October 1, 2012 and carry Los Angeles Lakers’ basketball games and other sports programming.
Other revenue increased for the fourth quarter and full year of 2012 primarily as a result of fees from distributors of the Los Angeles regional sports networks.
Fourth-quarter 2012 Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) increased 5.6% from the fourth quarter of 2011 to $2.0 billion driven by revenue growth, partially offset by a 12.5% increase in operating expenses. In particular, employee costs were up 11.4% to $1.2 billion, video programming expenses grew 7.0% to $1.2 billion, marketing costs increased 18.3% to $181 million, voice costs were up 10.6% to $156 million and other operating costs increased 27.0% to $649 million.
Full-year 2012 Adjusted OIBDA increased 8.3% from 2011 to $7.8 billion. The year-over-year increase in Adjusted OIBDA was driven by revenue growth, partially offset by an 8.9% increase in operating expenses. For the full year, employee costs were up 10.7% to $4.5 billion, video programming expenses grew 6.4% to $4.6 billion, voice costs were up 3.2% to $614 million and other operating costs increased 15.6% to $2.3 billion.
In both the fourth-quarter and full-year 2012:
- Employee costs were up primarily due to higher headcount (primarily driven by acquisitions and organic growth in business services, partially offset by an organic decline in residential services) and higher compensation costs per employee. Pension costs increased $15 million and $60 million for the fourth quarter and full year of 2012, respectively, primarily due to the decline in interest rates to historically low levels.
- Video programming expenses grew due to an increase in average monthly video programming costs per video subscriber and a net increase in video subscribers (primarily due to the acquisition of Insight offset, in part, by an organic decline in video subscribers). Average monthly video programming costs per video subscriber increased 5.1% year-over-year to $31.28 for the fourth quarter of 2012 and 5.2% year-over-year to $31.12 for the full year of 2012, primarily driven by contractual rate increases and the carriage of new networks, partially offset by a decline in transactional video-on-demand costs. For the fourth quarter and full year of 2012, video programming costs were reduced by approximately $20 million and $40 million, respectively, and, for the full year of 2011, video programming costs were reduced by approximately $25 million due to changes in cost estimates for programming services carried during contract negotiations, changes in programming audit reserves and certain contract settlements.
- Voice costs were up primarily as a result of an increase in voice subscribers due to both organic growth and the Insight acquisition, partially offset by a decrease in delivery costs per subscriber related to the in-sourcing of voice transport, switching and interconnection services.
- Other operating costs increased as a result of costs associated with Insight and the Los Angeles regional sports networks, as well as increases in a number of categories.
Fourth-quarter 2012 Operating Income increased 13.6% from the fourth quarter of 2011 to $1.2 billion and full-year 2012 Operating Income increased 9.2% from 2011 to $4.4 billion, both driven by higher Adjusted OIBDA and the fourth-quarter 2011 wireless-related asset impairments, partially offset by higher depreciation and amortization expenses primarily as a result of the Company’s recent acquisitions (largely Insight). The increase in depreciation expense was partially offset by certain assets acquired in the 2006 transactions with Adelphia Communications Corporation and Comcast Corporation that were fully depreciated as of July 31, 2012. Operating Income growth was also impacted by merger-related and restructuring costs, which, on a year-over-year basis, decreased $17 million for the fourth quarter of 2012 and increased $45 million for the full year of 2012.
Adjusted OIBDA less Capital Expenditures for the full year of 2012 totaled $4.7 billion, a 10.3% increase over the full year of 2011, primarily due to higher Adjusted OIBDA, partially offset by higher capital expenditures. Capital Expenditures, which include Insight-related capital spending of approximately $100 million, were $3.1 billion in 2012.
Fourth-quarter 2012 Net Income Attributable to TWC Shareholders was $513 million, or $1.70 per basic common share and $1.68 per diluted common share, compared to $564 million, or $1.76 per basic common share and $1.75 per diluted common share, in the prior year quarter. Full-year 2012 net income attributable to TWC shareholders was $2.2 billion, or $6.97 per basic common share and $6.90 per diluted common share, compared to $1.7 billion, or $5.02 per basic common share and $4.97 per diluted common share, in the prior year.
Fourth-quarter Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain tax matters, a 2011 asset impairment and other items affecting the comparability of TWC’s results for 2012 and 2011 (detailed in Note 1 to the accompanying consolidated financial statements), were $479 million and $1.57, respectively, for the fourth quarter of 2012 compared to $447 million and $1.38, respectively, for the fourth quarter of 2011. These increases were primarily due to higher Operating Income, partially offset by higher income tax provision.
Full-year Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS, which exclude the 2012 investment-related gains (SpectrumCo, LLC and Clearwire Corporation), certain tax matters and other items detailed in Note 1, were $1.8 billion and $5.75, respectively, for 2012 compared to $1.6 billion and $4.69, respectively, for 2011. These increases were primarily due to higher Operating Income and a change in other income (expense), net, partially offset by higher income tax provision and interest expense, net. The change in other income (expense), net, was primarily due to a decline in losses from Clearwire Communications LLC as the Company’s investment was reduced to $0 during the third quarter of 2011.
Additionally, Adjusted Diluted EPS for the fourth quarter and full year of 2012 benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program.
Free Cash Flow for the full-year 2012 decreased 7.1%, or $194 million, to $2.6 billion due mainly to lower cash provided by operating activities and an increase in capital expenditures. Cash Provided by Operating Activities for the full-year 2012 was $5.5 billion, a 2.9% decrease from $5.7 billion in 2011. This decrease was driven by an increase in income tax payments, a significant income tax refund (received in the first quarter of 2011) and higher net interest payments, partially offset by higher Adjusted OIBDA and lower pension plan contributions.
Net Debt and Mandatorily Redeemable Preferred Equity totaled $23.5 billion as of December 31, 2012 compared to $21.6 billion as of December 31, 2011, as the cash used for the acquisition of Insight, share repurchases and dividend payments was greater than Free Cash Flow and the proceeds from the sale of SpectrumCo’s advanced wireless spectrum licenses.
RETURN OF CAPITAL
Time Warner Cable returned $742 million and $2.6 billion to shareholders during the fourth quarter and full year of 2012, respectively. Share repurchases totaled $571 million, or 6.0 million shares of common stock, during the fourth quarter of 2012 and totaled $1.9 billion, or 22.1 million shares of common stock, during the full year of 2012. As of December 31, 2012, $2.2 billion remained under the Company’s share repurchase authorization. Time Warner Cable also paid regular dividends of $171 million and $700 million during the fourth quarter and full year of 2012, respectively.
Non-GAAP Financial Measures
The Company refers to certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), including OIBDA, Adjusted OIBDA, Adjusted OIBDA less capital expenditures, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow. Refer to Note 2 to the accompanying consolidated financial statements for a discussion of the Company’s use of non-GAAP financial measures.
About Time Warner Cable
Time Warner Cable Inc. (NYSE: TWC) is among the largest providers of video, high-speed data and voice services in the United States, connecting more than 15 million customers to entertainment, information and each other. Time Warner Cable Business Class offers data, video and voice services to businesses of all sizes, cell tower backhaul services to wireless carriers and managed and outsourced information technology solutions and cloud services. Time Warner Cable Media, the advertising arm of Time Warner Cable, offers national, regional and local companies innovative advertising solutions. More information about the services of Time Warner Cable is available at www.twc.com, www.twcbc.com and www.twcmedia.com.
Additional details on financial and subscriber metrics are included in the Trending Schedules and Presentation Slides posted on the Company’s Investor Relations website at www.twc.com/investors.
Information on Conference Call
Time Warner Cable’s earnings conference call can be heard live at 8:30 am ET on Thursday, January 31, 2013. To listen to the call, visit www.twc.com/investors.
Caution Concerning Forward-Looking Statements
This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological, strategic and/or regulatory factors, and other factors affecting the operations of Time Warner Cable Inc. More detailed information about these factors may be found in filings by Time Warner Cable Inc. with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Time Warner Cable is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
Alex Dudley (212) 364-8229
Justin Venech (212) 364-8242
Tom Robey (212) 364-8218
Laraine Mancini (212) 364-8202